Bright Dairy, the Chinese partner of France's Group Danone SA, said net income totaled 152.8 million yuan (US$19.77 million) last year, against 211.1 million yuan from a year earlier, according to its filings to the Shanghai Stock Exchange yesterday. Sales revenue rose 4.5 percent to 7.21 billion yuan year on year.

The nation's third-largest dairy company, in terms of fresh milk sales, blamed the profit drop on increased spending on advertisements amid keen competition from Inner Mongolia Mengniu Dairy Co Ltd and Yili Industrial Group, which accelerated their expansion.

"Bright has been undergoing a restructuring of its product line-up and has developed a strategy last year to differentiate itself from rivals," said Meng Hao, an analyst from China Southern Securities Co Ltd.

The firm hopes profit will hit 240 million yuan this year, with sales revenue of 8.65 billion yuan via a wider sales network outside eastern China, better technology and new products.

China's demand for dairy products is expected to increase at an annual rate of 12.8 percent to hit 38 million tons by 2010, fueled by people's rising income.

Bright Dairy has a dominant market share in the Shanghai region but it lost ground to Mengniu and Yili in China's saturated dairy market.

Shanghai-based Bright Dairy is competing for a bigger share of the fresh milk and yogurt product markets after teaming up with Danone in 2000.

In April last year, Danone agreed to pay 358 million yuan (US$44.7 million) to increase its stake in Bright Dairy to 20.01 percent from 11.55 percent, and Meng said the French group "has been considering for a long time to further raise its stake in Bright."

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